Worldwide: Lawyers' Liability: A Global Perspective

Clyde & Co now has 40 offices worldwide. In this round-up we provide snapshots of the key lawyers' liability rules around the world.

Australia

Jenni Priestley, Partner, Sydney

A key issue of concern for PI insurers generally remains the increasing prevalence of class action litigation. It is clear that the existence of insurance is a key driver in the commencement of many claims. Relative procedural simplicity combined with readily available third party funding has resulted in class actions being a major source of significant claims in Australia. In addition, there has also been a significant increase in the value of settlements achieved.

Nevertheless, there has been neither an avalanche of claims nor any radical shifts or changes in the law of liability recently, and the prevailing market conditions are currently "steady as she goes". In this regard, the High Court of Australia has provided welcome certainty in its recent (13 May 2015) judgment in the long running case of Selig v Wealthsure Pty Ltd [2015] HCA 18. The case concerned claims of negligent financial advice and the consequential application of the proportionate liability regime to various sections of the Corporations Act. The High Court found that an "apportionable claim" was limited to the specific sections of the Corporations Act providing for the apportionment of damage and did not extend to breaches of other sections simply because the damage claimed was based upon the same underlying conduct and resulted in the same loss. The decision provides clarity in relation to the application of the proportionate liability regime following on from a number of previously conflicting decisions at the appellate level.

The case is also of interest to the wider PI market because the High Court held that the circumstances justified an award of costs against the Respondent's PI insurer (a non-party to the proceedings). The Court found that the decision to appeal the first instance judgment in circumstances where the respondent's cover under its policy was capped meant that monies that it would otherwise have been required to pay to the appellants were diverted to the insurer's litigation costs. The High Court held that as the insurer had acted in its own interest in appealing there was no reason it should be immune from a costs order. This will no doubt be cause for concern going forward for PI and other insurers funding the cost of appeals in Australia.

Finally, a further issue to watch is the rise of litigation concerning the scope of professional indemnity policies and professional exclusion clauses in other policies.

Canada

Trevor McCann, Partner, Montreal

Canadian law firms are increasingly facing class action claims framed in negligence rather than as negligent misrepresentation, an important distinction since it allows such claims to pass through the scrutiny of class action certification. Such claims are especially brought in relation to allegedly negligent advice on tax strategies, on the basis that the advice assisted in bringing the strategy to market, even though the class members do not allege reliance on its terms and are not the lawyers' clients. This has led to large settlements in some instances and an increased appetite on the part of the class action plaintiffs' bar to bring these claims.

Another area of rapid development is conflict of interest law. The law surrounding legal conflicts, confidential information, and presumptions of communication absent ethical screens is 25 years old. However, the scope of the lawyer's duty of loyalty to clients and former clients has been the object of three Supreme Court decisions, each of which has nuanced the law set out in earlier ones, and numerous lower court decisions across Canada. One branch in which this has developed, illustrated in the McKercher decision, concerns the scope of the lawyers' duty not to act adversely to a client or former client, and the replacement of the "professional litigant" exception to the "bright line rule" by a test focusing on the objective but contextually assessed reasonable expectations of the client. The professional liability implications of these developments have only begun to be felt.

France

David Meheut, Local Partner, Paris

A potential source of claims exposure, particularly for law firms, is cyber and data protection. Law firms are regarded as a weak point. The French Data Protection authority is looking at inadequate databases (e.g. containing private data) and has taken action, including against large firms. It has the power to initiate investigations, not simply to act following a complaint. Inadequate protection exposes the law firm to administrative and criminal fines and publication of the action taken with reputational consequences. Whilst action has historically not been regularly taken, the amounts at stake will get much higher when the EU DP regulation comes into effect in late 2017/ early 2018.

The base point in France is that fines are uninsurable (there is a first instance decision on the point and the Insurance Regulator said in the 1990s that they were uninsurable as a matter of public policy) but the issue is not clear cut and is the subject of academic debate. Some controversy arose three years ago in a decision of the French Supreme Court which concerned a sentence imposed by the Financial Markets Regulator. The insurer has argued that the matter involved intentional wrongdoing so was not insurable as a matter of public policy and the court agreed, leaving it open for some to argue that it was the intentional wrongdoing that was focussed on, not the issue of whether the fines were uninsurable as a matter of public policy per se.

Hong Kong

Patrick Perry, Partner, Hong Kong

Hong Kong continues to be seen by professional service firms as a key jurisdiction, both as a domestic marketplace in its own right and for servicing mainland China. In this latter regard, Hong Kong's economy is intrinsically linked to that of Mainland China. For Hong Kong's professionals, it is the largest export market for their services. In turn, the (relatively new) wealthy Mainland Chinese see Hong Kong as a safe harbour to invest their cash. This cross-border activity, involving different legal systems and different cultural and business attitudes, creates the risk of claims. Due diligence of Chinese assets is particularly problematic, and there is a stark difference in the approach to regulation between the two countries. Access to the "too big to miss" Chinese markets is both an opportunity for Hong Kong's professionals and their insurers, and their greatest challenge.

Hong Kong has the second largest stock market in Asia and is a dominating force in IPOs, and this creates a substantial demand for professional services. As a result, it has a well-established legal sector with a turnover in excess of USD 1.5 billion. Solicitors are therefore, together with accountants, the professional firms who are most exposed to claims. This is not a new trend, but reflects the maturity of these sectors in Hong Kong, and the demand for these types of professional services. However, the majority of claims against solicitors relate to conveyancing and litigation work and are generally low value.

Separately, there is an ever increasing willingness to sue barristers, and although there has been no decision abolishing advocates' immunity, arguments are being mounted that it should no longer apply.

While the environment is not as litigious as in the United States and the United Kingdom, it is also not as benign as other Asian territories, such as Singapore and Thailand.

Middle East

Mark Beswetherick, Partner, Dubai

The Middle East continues to be a relatively benign place for lawyers to practise in terms of their potential exposure to negligence claims. Claims have traditionally been few and far between and the legal profession (both the local and international firms that operate around the region) has avoided the sharp increase in claims following the financial crisis that has affected the profession around the world, but nonetheless the incidence of such claims is gradually increasing in the region. Lawyer's PI is, however, still generally considered a low risk area of business by PI underwriters operating in the Middle East because claims are not common.

The reasons for the past reluctance to pursue claims against lawyers in the local courts may include factors such as the lack of recoverability of costs for successful parties, lack of clarity within the law as to the scope and meaning of negligence and lengthy delays in the litigation process. The fact that some local firms do not carry professional indemnity cover, and are not required to do so (unlike international firms operating in the region), also means that pursuing claims against them may not be worthwhile for commercial reasons. The rise of specialist financial centres such as the Dubai International Financial Centre (DIFC) based on the Common Law model of the UK Courts has had an important impact on the general picture; the first significant DIFC negligence claim against a major international law firm was launched in the DIFC Courts in mid-2011. Negligence claims against other professionals, such as auditors and financial institutions in the DIFC Courts are more common. The recent decisions in Corinth Pipeworks SA v Barclays Bank PLC (which related to alleged misrepresentation made by a bank's employee as to goods supplied by Corinth) and Al Khorafi v Bank Sarasin Alpen (ME) Ltd (which related to a negligent mis-selling claim against a Swiss and DIFC Bank) have also altered the liability landscape for firms operating in the DIFC who may find themselves sued there even in respect of advice given outside the DIFC.

However, in relation to lawyer's PI, both onshore in the UAE (to a lesser degree) and in the DIFC, for now at least, the claims environment in the region remains relatively benign.

Singapore

Ian Roberts, Partner, Singapore Vanessa Kilner, Associate, Singapore

The establishment of the Singapore International Commercial Court (SICC) in January 2015, which has jurisdiction over claims of an international and commercial nature, is also a development to take note of. The SICC is empowered to determine questions of foreign law which can be based on submissions made by appropriately qualified foreign counsel, rather than being proved by way of expert evidence in the traditional manner. This therefore provides parties transacting in Singapore and in the region even greater choice in determining how to resolve disputes, and could well have an impact on the landscape for handling professional liability disputes in South East Asia.

From the perspective of insurers, there is enormous potential for growth in South East Asia in light of the number of emerging markets in the region with large populations in a rapidly expanding middle class in respect of which insurance penetration levels remain low. Against this backdrop, Singapore is ideally positioned as the gateway to those markets and has successfully established itself as an insurance hub from which insurers are well placed to execute a range of strategies to tap into the domestic as well as regional markets. This makes for a dynamic and competitive marketplace, with an influx in recent years of (re)insurers choosing to set up their regional headquarters in Singapore. Furthermore, in the same way that Singapore has emerged as an insurance hub, it is also very much a hub in relation to general commercial and financial operations in South East Asia, with professionals in Singapore commonly acting across the region.

Consequently, (re)insurers in Singapore will typically be looking to underwrite PI risks across the region as a whole, and will therefore need to be aware of not just the nuances within the Singapore market itself, but across all of South East Asia. This might include legal as well as cultural differences, both in terms of assessing and pricing the risk, but also in terms of handling claims. An obvious example arises from the hybrid mix of legal systems that underpin the countries in the region, which can encompass both common law as well as civil law. Furthermore, as a number of countries in the region require (re)insurance contracts covering local risks to be subject to local law, this issue cannot necessarily be side-stepped simply by introducing a different law and jurisdiction clause into the policies. Other notable features of underwriting PI risks in this region include the insureds' tendency to buy based on price, the lack of awareness amongst insureds as to how PI policies operate, and cultural differences which encourage insureds to resolve disputes privately prior to informing insurers.

South Africa

Max Ebrahim, Partner, Cape Town

In a rare motion, former clients have recently applied for the suspension of a renowned father and son duo of personal injury solicitors (the Bobroffs), pending an investigation into the firm's billing practices and its business and trust accounts.

The application is novel in that such action has, until now, usually been within the sole remit of the regulatory authority. However the applicants argue that the regulator has been "dithering" for years, such that direct action is required. As part of the motion, the applicants have asked the court to order the appointment of a curator to run the law firm and investigate fees charged historically.

The motion follows the decision of the South African Constitutional Court, in 2014, which declared the Bobroffs' billing practices unlawful. The pair acted almost exclusively on a contingency fee basis. Since 1998, contingency fee arrangements in South Africa have been regulated by the Contingency Fees Act (66 of 1997) but some attorneys, including the Bobroffs, took the view that that one could circumvent the prescripts of the legislation by entering into so-called ''common law" contingency agreements, in respect of which fees in excess of those prescribed in the Act were charged. The Constitutional Court unanimously rejected this contention and held the Bobroffs liable for the total value of fees charged in excess of the statutory limits.

This judgment has cast a spotlight on the way contingency work is carried out in the jurisdiction where access to justice is not freely available to the largely indigent population.

Spain

Ignacio Figuerol, Partner, Madrid

The majority of claims against lawyers in Spain continue to be based on the filing of court actions or appeals after expiry of the relevant deadline, which in Spain cannot be extended. Remarkably, the Spanish Supreme Court has also considered a lawyer liable for his client's inability to enforce a judgment because the lawyer had not advised the client to apply for an interlocutory order at the beginning of the proceedings so as to attach the assets of the defendant.

From the regulatory perspective, Spanish law societies are not as active as they may be in other jurisdictions, although two partners of a well-known firm were disqualified for a period of time for breach of the rules of conflict of interest in a matter in which the firm had been initially retained by a company undergoing insolvency proceedings, but subsequently acted on behalf of the directors of the company in defending claims brought against them for liability to the company.

From the insurance perspective, the PI insurance market will most likely need to address the proposed changes to the law of insurance contracts in Spain, which is currently predicted to become law by mid-2015. Most pertinently for PI insurers, the law will require that all liability policies provide for a 2 year discovery period, and insurers will have 40 days from notification to either make an interim payment on account or reject cover. Defence costs of the insured will be in addition to the policy limit if it is agreed in the policy that it will be for the insurer to take over the conduct of the defence of the claim.

United States of America

Jessica Kelly, Senior Counsel, San Francisco

The trend of the global law firm is on the rise and growth is most often achieved through mergers and lateral hires. In the first quarter of 2015, there were 29 announced law firm mergers in the United States. These mergers affected almost 21,000 lawyers worldwide. With this significant increase in the number of lateral moves, global risk management becomes more complex and important, and highlights the challenges of checking and identifying potential conflicts of interest.

In several publicly available cases, law firms have been disqualified from cases after potential conflicts were identified post-merger and inadequate or no conflict waivers were obtained from the clients pre-merger. These cases most often arise when incomplete conflicts checks are completed prior to a merger or lateral acquisition. We anticipate that as law firm mergers continue to increase in frequency, law firms will be compelled to implement more extensive conflict check requirements, at an increased cost, and more law firms will face claims and/or disqualification arising from potential conflicts.

Similarly, the lateral movement of lawyers among law firms creates added burdens on risk management requirements to identify not only clients that present potential conflicts of interest but transferred clients who might raise risk management "red flags". The initial client acceptance program in most law firms includes vigorous financial and background reviews and checking; with lateral partners there is an inherent risk that only conflict checks will be performed and the balance of a "client risk" is simply assumed in the transfer. Knowing your clients is a key to managing law firm risk; with global mergers and the fluid movement of partners across firms, there is a risk that the acquiring firm's new clients could be a ticking time bomb.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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